Investments for setting up new plants, production capacity and absorption of next generation technology has been discussed in the proposal
Honda Motorcycle and Scooter India (HMSI), the country’s second largest two-wheeler maker, has sent a proposal to its headquarters in Japan to transform itself into an export hub supplying to all markets, including the United States and Europe.
Investments for setting up new plants, increasing production capacity and absorption of next generation technology has been discussed in the proposal.
Based on Honda Motor Company’s decision on making India an export hub, the country could see a significant jump in investments between 2019 and 2023.
Minoru Kato, president and chief executive, HMSI said, “We can start exports to a good number of countries in the future. Presently, we cannot export to developed markets such as US, Europe and Japan, but after 2023 we can start catering to these markets because, by then, OBD-II (on-board diagnostics) norms will be in place”.
OBDs are computer-based devices which keep a check on emission and sensors and provide accurate information when needed. Presently, HMSI exports economy bikes and scooters to a small number of developing and underdeveloped countries in SAARC and central America.
Exports made up only 5 per cent (3.48 lakh) of HMSI’s total sales of 6.1 million clocked last financial year. Sri Lanka, Bangladesh, Columbia and Nepal are the biggest of the 27 countries HMSI exports to.
Despite utilizing 95 per cent of the installed production capacity in all four plants (Rajasthan, Gujarat, Karnataka and Haryana), Honda is reluctant to add fresh capacity in India given the uncertainty over demand post implementation of Bharat Stage VI in 2020.
Implementation of BS-VI preceded by the adoption of ABS (anti-lock braking system) in all vehicles having engines bigger than 125cc in 2019 will push up prices of two-wheelers, thereby impacting buyer sentiments.
On Tuesday, HMSI announced Rs 800 crore investment for the current financial year, but almost all of it will be used for upgrade to BS-VI technology and not for new capacity addition. Kato said no new plant is expected to come up before 2020.
Through improvement of efficiency and removal of bottlenecks from its production lines, HMSI can free up enough capacity which can help it achieve a double digit growth in volumes this financial year.
However, the company may experience a demand-supply mismatch if sales continue at the same pace of growth beyond FY19, while there is no simultaneous addition of new capacity. It typically takes two years for a new two-wheeler plant to come on stream.
“Once we upgrade our Indian product line up for exports, we can go to new countries to meet their homologation requirements”, said Yadvinder Singh Guleria, senior vice-president (sales and marketing), Honda Motorcycle & Scooter India.
HMSI has been adding new production capacity at break-neck speed over the past few years. The Delhi-based company added its fourth assembly line in Narsapura plant in Karnataka last year which, at 2.4 million units a year capacity, made the plant the biggest in the world for Honda Motor Company.The company has set its sights on the 'numero uno' position for which it will have to beat Hero MotoCorp, the country’s leading two-wheeler maker.